Life is a big problem," Donatella Versace says with a husky laugh, sitting beneath a crystal chandelier in a pristine Victorian suite at the Waldorf Towers in Manhattan. The designer, dressed head-to-toe in her own label — beige leather jacket, leopard-print blouse, skinny tan pants, and studded peep-toe shoes — pulls a Marlboro Red from a pack of smokes. A swirly, black-and-white Versace decal is plastered over the "smoking is bad for you" warning.

"You can have small moments of happiness in life," she continues, exhaling a plume of smoke. "You certainly can't expect years and years of it."

A posse of stylish colleagues, perched on flowery love seats around the room, chuckle. "Life is tough," one says.

"But that's what makes it interesting," counters the 54-year-old Versace. "Could you imagine if we were always happy? There would be nothing to complain about. Life would be boring."

Not much happens that's ho-hum in Versace's orbit. As creative director of a fashion empire, the much-parodied doyenne of decadence presides over 110 global boutiques and jokes that she only takes off her towering heels to go to bed or to the gym. When Maya Rudolph mocked her on Saturday Night Live, Versace gamely coached the comedian over the phone on how to be a diva, starting with, "I can tell from a mile away that your jewelry is fake. You can't wear fake jewelry!" Yet Versace's life has been defined by tragedy. She grew up in a modest family in Italy that lost a child to tetanus before Versace was born, crushing her parents. In 1997, her brother, fashion icon Gianni Versace, was famously gunned down outside his Miami mansion by a serial killer. She carries with her the key to Gianni's front door, because it's the last thing he touched.

"I keep him close," she says. "We were very close." Then she adds in her throaty Italian accent, "But you can survive tragedies."

Versace, whose philanthropic work has included breast cancer campaigns and glitzy museum fundraisers, is now turning her attention toward children — victims of the colossal earthquake that decimated the Sichuan region of China in 2008, leaving nearly 70,000 dead just months before the country hosted the Summer Olympics. After seeing the news, she teamed up with Chinese martial-arts star Jet Li and started the Versace One Foundation, which has funded a pair of children's centers, stocked with schoolteachers as well as doctors, to help kids in Sichuan deal with post-traumatic stress. "When you take care of the soul," says Versace, "that's something the child keeps forever."

No doubt, heads whipsawed when she visited the hard-hit Chinese town of San Jiang last fall. The only blonde for miles, Versace doesn't know if anyone recognized her — but "they knew Jet Li, for sure," she says with a grin. "They were just so grateful we were there, so warm. They didn't ask me for one thing." While in town, she held an impromptu fashion show, setting up a runway and cobbling together outfits from local fabrics for the girls. The memory is a keeper, she says: "I will never forget it, as long as I live."

Versace, herself a mother of two — Allegra, 23, and Daniel, 20 — is also enlisting her new young Chinese friends to work as mini designers. As part of a collaboration with New York's Whitney Museum of Art, 900 children from China, along with 500 American kids, are busy drawing on canvas tote bags, some of which will be carried by models on the runway during Milan's Fashion Week this month. In October, the bags will go on sale at Versace boutiques worldwide. Proceeds will benefit Versace's centers in China, as well as the U.S.-based Starlight Children's Foundation, which works with seriously ill or injured kids. The idea is to provide therapy through art — and to have some fun.

After all, Versace notes, taking a drag of her ciggie with a casual flourish, "I like to look forward to the future and never to the past. Life is up and down. What can you do?"